Mr Ajay is provided with the given information below about Ding Limited, a company which make only one type of product. (a) Variable manufacturing cost per unit of product: This is expected to be: Rs. Direct materials 40.00 Direct labour 60.00 Variable production overhead 30.00 Variable production cost per unit 130.00 (b) Fixed production overhead per annum: Assume fixed production overhead is incurred evenly and paid in the month used. Rs. Insurance 40,000 Salaries 300,000 Other 80,000 (c) Estimated sales from June to September: Units Rs. June 3,000 900,000 July 5,000 1,500,000 August 7,000 2,100,000 September 7,500 2,250,000 (d) Finished goods stock: 65% of each month’s invoiced sales are produced in the previous month and the balance are produced in the month of sale. (e) Raw material stocks: 60% of direct materials required for each month’s production are purchased in the previous month and the balance in the same month. Direct materials are paid in the month following purchase. (f) Direct wages. Paid in the month incurred. (g) Variable overhead: 70% is paid in the month of usage and the balance the following month. (h) Collections from debtors. 20% received in the month of sale. 35% received in the following month. 45% received in the third month. 2% discounts are allowed to customers paying in the month of sale. (i) The cash balance at the end of May is expected to be Rs400,000. Required: (a) Prepare a cash budget for the months of June to September. (b) Comment on the cash budget and suggest possible courses of action that Ding Limited should take in the light of the results obtained in (a).
Mr Ajay is provided with the given information below about Ding Limited, a company which make only one type of product.
(a) Variable
This is expected to be:
|
|
Rs. |
|
Direct materials |
40.00 |
|
Direct labour |
60.00 |
|
Variable production overhead |
30.00 |
|
Variable production cost per unit |
130.00 |
(b) Fixed production overhead per annum:
Assume fixed production overhead is incurred evenly and paid in the month used.
|
|
Rs. |
|
Insurance |
40,000 |
|
Salaries |
300,000 |
|
Other |
80,000 |
(c) Estimated sales from June to September:
|
|
Units |
Rs. |
|
June |
3,000 |
900,000 |
|
July |
5,000 |
1,500,000 |
|
August |
7,000 |
2,100,000 |
|
September |
7,500 |
2,250,000 |
(d) Finished goods stock:
65% of each month’s invoiced sales are produced in the previous month and
the balance are produced in the month of sale.
(e) Raw material stocks:
60% of direct materials required for each month’s production are purchased
in the previous month and the balance in the same month. Direct materials
are paid in the month following purchase.
(f) Direct wages.
Paid in the month incurred.
(g) Variable overhead:
70% is paid in the month of usage and the balance the following month.
(h) Collections from debtors.
20% received in the month of sale.
35% received in the following month.
45% received in the third month.
2% discounts are allowed to customers paying in the month of sale.
(i) The cash balance at the end of May is expected to be Rs400,000.
Required:
(a) Prepare a
(b) Comment on the cash budget and suggest possible courses of action that Ding Limited should take in the light of the results obtained in (a).
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